EX-13 4 ffy-13.txt EXHIBIT 13 Exhibit 13 (FFY Logo) FFY Financial Corp. 2000 ANNUAL REPORT (Photo) Board of Directors of FFY Financial Corp. and FFY Bank Contents ---------------------------------------------------------------------------- Financial Highlights 1 President's Letter 3 Selected Consolidated Financial Information 4 Management's Discussion & Analysis 7 Financial Statements 20 Officers & Directors 42 Stockholder Information 43 Financial Highlights ---------------------------------------------------------------------------- FFY Financial Corp. and Subsidiaries (Dollars in Thousands Except Per Share Data) At or for the year ended June 30

(Photo) Presidents of the Bank Asahel Jones 1900-1906 Benjamin Wirt 1906-1930 Harry W. Geitgey 1930-1934 A. Grover Welsh 1934-1946 Carl E. Knodle 1946-1969 George W. Collier 1969-1975 George J. Smith 1975-1980 Norman Armstrong Jr. 1980-1986 Charles Shellogg Jr. 1986-1996 Jeffrey L. Francis 1996-Present To Our Shareholders: As I reflect on fiscal 2000, I am proud of the accomplishments our company has made in many areas. This year was no different than any others in the recent past, as we encountered many challenges that your board of directors and management team worked diligently to meet. We began the year by embarking on an initiative that we named Performance Banking. It was a two-pronged approach which embraced both pricing and efficiency. We looked at all of our product pricing and made appropriate adjustments to improve profitability by adjusting pricing to be more competitive on profitable services and less competitive on unprofitable services. At the same time, we reviewed in detail nearly every area of the organization including personnel, policies, procedures and systems. Results of our studies showed us what changes we needed to make to streamline our organization. Appropriate changes were developed and implemented. The practice of reviewing pricing and processes will continue as part of our management's approach to continuing performance improvement. Our financial performance was solid this year, notwithstanding the effects of rising interest rates. Compared to fiscal 1999, and excluding merger expenses recognized in the fiscal fourth quarter, our earnings per diluted share were up from $1.11 to $1.16 in 2000, return on average equity increased from 10.26% to 11.68% and our operating expense to average assets ratio improved from 1.88% to 1.87%. The Cleveland newspaper, The Plain Dealer, recognized the accomplishments of your company by naming FFY one of the 100 best performing companies in Ohio for 1999. Commercial lending, which was a priority in 1999, continued to be a growth area for us this year with additional staff and product offerings. During the year our commercial loan balances increased 27% or $9.5 million to a total of $44.6 million. We continue to target corporate banking for significant growth in the future. Bank customers were the recipients of many enhancements this year. We introduced our telephone banking system, opened a grocery store branch in Struthers and broke ground for an expanded office in Poland, which opened in August 2000. Our affiliates grew significantly this year as well. This past May FFY Insurance expanded with the acquisition of Moreman-Yerian Insurance Agency, a company that has been providing insurance service to customers since 1884. Coldwell Banker FFY Real Estate expanded, too, with the opening of a new office in Columbiana County and by adding a commercial real estate division. FFY Bank is celebrating its 100th year of service to the Mahoning Valley. This has only been possible through the efforts of thousands of dedicated employees over the years, including the fine staff currently with the company. The employees of the bank and our affiliates have made fiscal 2000 a success, and I thank them for their efforts. While we are proud of our history and our performance this past year, I am most excited about the future, in particular our future with our proposed merger partner, First Place Financial Corp. This merger of equals will combine the strengths and talents of two fine organizations into one. With total assets of approximately $1.7 billion, First Place will be the largest financial institution ever headquartered in the Mahoning Valley, and the fourth largest thrift institution in Ohio. Combined with our affiliates, our organization of the future will be one of which our shareholders will continue to be proud. Thank you very much for your continued support. Sincerely, /s/ Jeffrey L. Francis Jeffrey L. Francis President and Chief Executive Officer Selected Consolidated Financial Information ---------------------------------------------------------------------------- FFY Financial Corp. and Subsidiaries (Dollars in Thousands Except Per Share Data)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following presents management's discussion and analysis of the Company's financial condition and results of operations. This discussion and analysis highlights significant changes in balance sheet items and principal factors affecting earnings for each of the periods presented in this Annual Report. Financial information for prior years is presented when appropriate to discuss. The objective of this commentary is to enhance the reader's understanding of the accompanying financial statements, tables and charts and should be read in conjunction with the financial statements and notes thereto. (Photo) Senior management and the Board of Directors rely heavily on their competent and professional executive secretarial staff. General FFY Financial Corp. (FFY or Company) is a unitary savings and loan holding company incorporated under the laws of Delaware and is engaged in financial services through its wholly-owned subsidiaries, FFY Bank (Bank) and FFY Holdings, Inc. FFY Bank is a federally chartered savings bank and FFY Holdings, Inc. invests in entities offering expanded financial services to its customers. In June 1993, FFY Bank converted from a federally chartered mutual savings bank to a federally chartered stock savings bank. As part of the conversion, the Company acquired all of the outstanding common stock of the Bank. FFY Holdings, Inc., which was formed in August 1997, has a one- third interest in Coldwell Banker FFY Real Estate and a 100% interest in FFY Insurance Agency, Ltd. (formerly known as Daniel W. Landers Insurance Agency, Ltd.). Real estate services are offered through Coldwell Banker FFY Real Estate and property and casualty insurance is offered through FFY Insurance Agency, Ltd. In May 2000, FFY Holdings, Inc. acquired the minority interest in FFY Insurance Agency, Ltd. Also in May 2000, FFY Insurance Agency, Ltd. acquired Moreman-Yerian Insurance Agency, which had an over 100-year history of providing insurance products to consumers in the Company's market area. On May 23, 2000, FFY and First Place Financial Corp. (First Place), the holding company for First Federal Savings and Loan Association of Warren, entered into a definitive agreement (the Merger Agreement) to combine in a merger of equals (the Merger). The Merger Agreement calls for a tax-free exchange of each outstanding share of FFY common stock for 1.075 shares of First Place common stock, with cash paid in lieu of fractional shares. In addition, pursuant to the Merger Agreement, the Bank will merge with First Federal Savings and Loan Association of Warren to become First Place Bank. The Merger will be accounted for as a purchase and is expected to close in the fourth quarter of calendar year 2000. The Merger Agreement has been approved by the boards of directors of both companies. However, it is subject to certain other conditions, including the approvals of the shareholders of both companies and the approvals of regulatory authorities. Forward-Looking Statements When used in this Annual Report, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rate changes in the relationship between short- and long-term interest rates, demand for loans in the Company's market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. (Photo) FFY Bank's in-house appraisal staff enables us to complete your real estate appraisal within 48 hours. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Changes in Financial Condition General. Total assets at June 30, 2000 were $674.5 million compared to $675.7 million at June 30, 1999, a decrease of $1.2 million, or 0.2%. The decrease during fiscal year 2000 was primarily due to a decline in the securities portfolio, partially offset by growth in the Bank's loan portfolio. Total liabilities at June 30, 2000 were $609.3 million compared to $605.6 million at June 30, 1999, an increase of $3.7 million, or 0.6%. This increase was primarily due to an increase in borrowed funds, partially offset by a decline in deposit accounts. The discussion below provides greater detail regarding significant changes in balance sheet items. Securities Portfolio. The Company's securities portfolio decreased $32.2 million, or 16.9%, during fiscal year 2000 and totaled $158.1 million at June 30, 2000 compared to $190.3 million at June 30, 1999. The decrease during fiscal year 2000 was comprised primarily of $15.4 million, $8.8 million and $3.0 million in security sales, principal receipts and maturities, respectively. Also contributing to the decline in securities was a $5.5 million increase in the gross unrealized loss in the securities portfolio, resulting from an increase in interest rates. Management believes that the decline in fair value is temporary and that there is no impairment of securities. Security purchases totaling $743,000 partially offset the aforementioned declines. Proceeds provided by the sales, principal receipts and maturities of securities were primarily used to fund the growth in loans receivable. A summary of the securities portfolio can be found in Note 2 of the Notes to Consolidated Financial Statements contained in this Annual Report. Loan Portfolio. Net loans receivable increased $30.7 million, or 6.80%, during fiscal year 2000 and totaled $484.5 million at June 30, 2000 compared to $453.8 million at June 30, 1999. First mortgage loans at June 30, 2000 totaled $442.9 million, or 88.5% of total gross loans compared to $412.4 million, or 88.3% of total gross loans at June 30, 1999. The dollar volume increase in first mortgage loans was primarily in loans secured by one- to four -family residences and commercial real estate. One- to four -family residential loans totaled $351.4 million, or 70.2%, of total gross loans at June 30, 2000, compared to $335.1 million, or 71.7%, of total gross loans one year earlier. This increase in one- to four -family loans was largely the result of retaining such newly-originated loans in FFY Bank's portfolio as opposed to selling them in the secondary market during the increasing interest rate environment that existed during fiscal year 2000 - see below. Commercial real estate loans totaled $44.6 million, or 8.9%, of the total gross loans at June 30, 2000, compared to $33.7 million, or 7.2%, of total gross loans one year earlier. This increase was attributable to the Company's management identifying commercial real estate lending as a growth area throughout fiscal 2000. Consumer and other loans at June 30, 2000 totaled $57.4 million, or 11.5% of total gross loans compared to $53.5 million, or 11.4% of total gross loans at June 30, 1999. The dollar volume growth in consumer and other loans was primarily in home equity loans, which totaled $44.4 million, or 8.9%, of total gross loans at June 30, 2000, compared to $37.9 million, or 8.1% of total gross loans one year earlier. Like commercial real estate lending, this increase was attributable to the Company's management identifying home equity lending as a growth area throughout fiscal 2000. (Photo) FFY Insurance expanded in May 2000 with its acquisition of the Moreman-Yerian Insurance Agency which was founded in Youngstown in 1884. FFY Bank's secondary market mortgage lending operation originates and sells qualifying loans to the Federal National Mortgage Association (Fannie Mae). During fiscal year 2000, FFY Bank sold 192 loans with an aggregate principal balance of $14.9 million resulting in a pre-tax gain of $234,000. This compares to sales in fiscal year 1999 of 390 loans with an aggregate principal balance of $31.0 million and a pre-tax gain of $720,000. FFY Bank's secondary market sales slowed during fiscal year 2000 due to rising market interest rates, which caused us to keep more loans in our portfolio. However, management expects that the secondary market mortgage lending program will continue as long as market conditions allow it to be profitable. Deposits. Deposit accounts decreased $11.3 million, or 2.5%, during fiscal year 2000 and totaled $446.0 million at June 30, 2000 compared to $457.3 million at June 30, 1999. Declines in certificate and passbook accounts of $10.9 million and $10.1 million, respectively, were partially offset by increases of $7.7 million and $2.0 million in money market and demand accounts, respectively. The net deposit outflow during fiscal year 2000 was primarily funded by increased borrowings. The level of deposit flows during any given period is heavily influenced by factors such as the general level of interest rates as well as alternative yields that investors may obtain on competing instruments, such as money market mutual funds and other investments. The weighted average cost of deposits increased 29 basis points during fiscal year 2000, from 4.27% at June 30, 1999 to 4.56% at June 30, 2000. Repurchase Agreements and Borrowed Funds. Short-term repurchase agreements increased $320,000, or 4.8%, during fiscal year 2000 and totaled $6.9 million at June 30, 2000 compared to $6.6 million at June 30, 1999. Long- term repurchase agreements totaled $51.3 million at both June 30, 2000 and 1999. Short-term borrowings decreased $5.3 million, or 23.2%, during fiscal year 2000, whereas long-term borrowings increased $19.3 million, or 32.1%, during the same period. Short- and long-term borrowings totaled $17.5 million and $79.3 million, respectively, at June 30, 2000 compared to $22.8 million and $60.0 million, respectively, at June 30, 1999. Due to the rising interest rate environment that existed during fiscal year 2000, the weighted average cost of borrowings increased 162 basis points, from 5.06% at June 30, 1999 to 6.68% at June 30, 2000. Both short- and long-term borrowed funds consist of advances from the Federal Home Loan Bank of Cincinnati. Repurchase agreements and borrowed funds are managed within the Company's guidelines for asset/liability management, profitability and overall growth objectives. (Photo) Opened in February 2000, FFY Bank's first grocery branch inside the Nemenz Struthers IGA and offers traditional lobby and drive-up services. Stockholders' Equity. Total stockholders' equity declined $4.9 million, or 7.0%, during fiscal year 2000 and totaled $65.2 million at June 30, 2000 compared to $70.1 million at June 30, 1999. This decline resulted principally from stock repurchases, dividends paid to stockholders and a decline in market value of available-for-sale securities, net of tax, totaling $7.1 million, $3.1 million and $3.6 million, respectively. These declines were partially offset by net income for fiscal year 2000 totaling $7.4 million and other increases totaling $1.5 million. On January 19, 1999, the Company announced a 100% stock dividend, which is equivalent to a two- for-one stock split, that was paid on March 5, 1999 to stockholders of record on February 19, 1999. Accordingly, all share and per share data have been restated as a result of the stock dividend. (Photo) Ensuring proper processing of checks and timely delivery of statements is the responsibility of our Check Processing department. Results of Operations The Company's results of operations depend primarily on the level of net interest income, which is the difference, or "spread", between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Interest-earning assets consist primarily of loans receivable and securities, whereas interest-bearing liabilities consist primarily of deposits, repurchase agreements and borrowed funds. The ratio of average interest-earning assets to average interest-bearing liabilities during fiscal year 2000 was 1.10:1 compared to 1.13:1 during fiscal year 1999. Net interest income is affected by both changes in the level of interest rates and changes in the amount and composition of interest-earning assets and interest-bearing liabilities. Results of operations are also dependent upon, among other things, the provision for loan losses, non-interest income, non-interest expense and income taxes. Comparison of Years Ended June 30, 2000 and 1999 General. The Company recorded net income for the year ended June 30, 2000 of $7.4 million, a decrease of $780,000, or 9.6%, from net income of $8.1 million for the year ended June 30, 1999. Diluted earnings per share for the year ended June 30, 2000 were $1.12, a 0.90% increase from diluted earnings per share of $1.11 for the year ended June 30, 1999. The Company's return on equity for fiscal year 2000 was 11.28% compared to 10.26% for fiscal year 1999. Interest Income. Total interest income for the year ended June 30, 2000 was $49.8 million, an increase of $712,000, or 1.5%, compared to $49.1 million for the year ended June 30, 1999. Interest income from loans totaled $39.0 million for both of the years ended June 30, 2000 and 1999. A $4.1 million increase in the average balance of loans receivable was offset by an 8 basis point decline in yield earned on the loan portfolio. The increase in total interest income was primarily from an increase in interest earned on the securities portfolio. Interest income from securities totaled $10.4 million for the year ended June 30, 2000, an increase of $801,000, or 8.4%, compared to $9.6 million for the year ended June 30, 1999. The increase in interest from securities was due to a $10.2 million increase in the average balance of securities, using amortized cost basis, and a 27 basis point increase in yield (on a fully-taxable equivalent basis). The average balance of securities, using amortized cost basis, was $176.3 million and $166.1 million for the years ended June 30, 2000 and 1999, respectively, and the securities portfolio yielded 6.39% and 6.12% for the same respective periods. Although the average balance of securities increased comparing June 30, 2000 and 1999, the trend of a growing securities portfolio reversed during fiscal year 2000 due to proceeds from securities transactions being primarily used to fund loan growth. Interest Expense. Total interest expense for the year ended June 30, 2000 was $28.1 million, an increase of $1.6 million, or 6.1%, compared to $26.5 million for the year ended June 30, 1999. The increase in interest expense was due to an increase in both the average balance and cost of long-term borrowed funds. The average balance of long-term borrowed funds increased $38.5 million, from $30.2 million for fiscal year 1999 to $68.7 million for fiscal year 2000. The average rate paid on long-term borrowed funds increased 87 basis points, from 5.05% for the year ended June 30, 1999 to 5.92% for the year ended June 30, 2000 as a result of the rising interest rate environment that existed during fiscal year 2000. The increase in interest expense from long-term borrowings was partially offset by a decline in interest expense associated with interest-bearing deposit accounts. The average balance of interest-bearing deposit accounts declined $10.1 million, from $447.5 million for fiscal year 1999 to $437.4 million for fiscal year 2000. Additionally, a 7 basis point decline in cost of interest-bearing deposit accounts, from 4.49% for fiscal year 1999 to 4.42% for fiscal year 2000, contributed to the decline in interest expense associated with deposit balances. To a lesser extent, rate increases in short- and long-term repurchase agreements and short-term borrowings, partially offset by a decline in volume of short-term borrowings, contributed to the increased interest expense comparing fiscal years 2000 and 1999. (Photo) Ground was broken in summer 2000 for a more visible and enhanced Poland office complete with a new drive-up ATM to better serve that community. Net Interest Income. Net interest income for the year ended June 30, 2000 totaled $21.7 million, a decline of $896,000, or 4.0%, compared to $22.6 million for the year ended June 30, 1999. The Company's net interest margin declined 16 basis points, from 3.62% for fiscal year 1999 to 3.46% for fiscal year 2000. The decline in net interest margin was principally due to the increased cost of borrowings. (Photo) Accurate recordkeeping, timely reporting and regulatory compliance are just a small part of the Accounting and Auditing Department functions. Provision for Loan Losses. The provision for loan losses totaled $476,000 for the year ended June 30, 2000 compared to $494,000 for the year ended June 30, 1999. The provision for loan losses reflects management's evaluation of the underlying credit risk of FFY Bank's loan portfolio to adequately provide for probable loan losses inherent in the loan portfolio as of the balance sheet date. The allowance for loan losses totaled 78.4% of non-performing loans at June 30, 2000, down from 112.3% at June 30, 1999 due to a $1.0 million increase in non-performing loans, principally one- to four- family loans. The Company's management analyzes the adequacy of the allowance for loan losses regularly through reviews of the performance of the loan portfolio, economic conditions, changes in interest rates and the effect of such changes on real estate values and changes in the composition of the loan portfolio. Future additions to the allowance for loan losses will be dependent on these factors. Management believes that the allowance for loan losses is adequate at June 30, 2000. Non-Interest Income and Expense. Non-interest income for the year ended June 30, 2000 totaled $2.0 million, a decline of $525,000, or 20.6% compared to $2.6 million for the year ended June 30, 1999 largely due to a $486,000 decline in gains from sales of loans. The decline in non-interest income was also due to a $158,000 decrease in gains from security sales comparing fiscal year 2000 to fiscal year 1999. Partially offsetting the decline was a $209,000 increase in service charge income, primarily non-sufficient funds charges, service fees on commercial checking accounts, debit card income and automated teller machine income. Non-interest expense increased $339,000 in fiscal year 2000 and totaled $12.8 million for the year compared to $12.5 million for the year ended June 30, 1999 primarily due to $329,000 in expenses related to the proposed merger of equals with First Place Financial Corp. Operating expense to average assets without the merger expenses totaled 1.87% for fiscal year 2000 compared to 1.88% for fiscal year 1999. (Photo) Coldwell Banker FFY Real Estate expanded its operations by opening a new office in Columbiana and a commercial real estate arm. Income Taxes. Federal income taxes for the year ended June 30, 2000 totaled $3.0 million, a decline of $992,000 compared to $4.0 million for the year ended June 30, 1999. The decline in federal income taxes resulted from less income subject to tax and a reduction in the Company's effective tax rate due to increased income from tax-exempt securities. Minority Interest. Minority interest in loss of consolidated subsidiaries represents the portion of net loss from the real estate and insurance affiliates not wholly-owned by FFY Holdings, Inc. during the year. Comparison of Years Ended June 30, 1999 and 1998 General. The Company recorded net income for the year ended June 30, 1999 of $8.1 million, an increase of $411,000, or 5.3%, from net income of $7.7 million for the year ended June 30, 1998. Basic and diluted earnings per share for the year ended June 30, 1999 totaled $1.15 per share and $1.11 per share, respectively, compared to $1.03 per share and $0.99 per share, respectively, for the year ended June 30, 1998. This represents an increase in basic and diluted earnings per share of 11.7% and 12.1%, respectively. The Company's return on average equity for fiscal year 1999 was 10.26% compared to 9.28% for fiscal year 1998. Interest Income. Total interest income for the year ended June 30, 1999 was $49.1 million, an increase of $1.1 million, or 2.2%, compared to $48.0 million for the year ended June 30, 1998. Interest income from loans declined $738,000, or 1.9%, and totaled $39.0 million for the year ended June 30, 1999 compared to $39.8 million for year ended June 30, 1998. This decrease was the result of a 20 basis point decline in the average yield earned on loans, from 8.59% to 8.39%, partially offset by an increase of $2.5 million in the average balance of loans outstanding. The average yield earned on loans declined due to a decrease in market rates for most of fiscal year 1999. Although net loans receivable declined $28.6 million from June 30, 1998 to June 30, 1999, the average balance of loans receivable increased as mentioned previously. The June 30, 1998 loans receivable balance included approximately $17.1 million of short-term loans made to customers in June 1998 to fund their stock subscriptions in a local financial institution's initial public offering which remained outstanding for part of the first quarter of fiscal year 1999, thus impacting the average balance for fiscal year 1999. Interest income from securities increased $1.9 million, or 25.3%, and totaled $9.5 million for the year ended June 30, 1999 compared to $7.6 million for the year ended June 30, 1998. This increase was the result of a $42.5 million increase in the average balance of securities, primarily Federal agency obligations, municipal securities and trust preferred securities. The increase in volume of securities was partially offset by a 29 basis point decline in the average yield on securities, from 6.41% to 6.12%. The decline in the weighted average yield was largely the result of reinvesting proceeds from a high level of loan repayments and prepayments at lower market rates. Interest Expense. Interest expense increased $955,000, or 3.7%, and totaled $26.5 million for the year ended June 30, 1999 compared to $25.6 million for the year ended June 30, 1998. This increase was primarily due to volume increases in long-term repurchase agreements and borrowed funds, partially offset by a rate decline in deposits and, to a lesser extent, volume and rate declines in short-term repurchase agreements. The average balance of long-term repurchase agreements and borrowed funds increased $17.1 million and $30.2 million, respectively. The average cost of interest on deposits declined 28 basis points, from 4.77% for fiscal year 1998 to 4.49% for fiscal year 1999. This decline in rate primarily reflects an overall reduction in market interest rates throughout the Company's 1999 fiscal year. Net Interest Income. Net interest income increased $122,000, or 0.5%, and totaled $22.6 million for the year ended June 30, 1999 compared to $22.4 million for the year ended June 30, 1998. The Company's net interest margin (net interest income as a percentage of average interest-earning assets) was 3.62% for the year ended June 30, 1999, down 19 basis points from 3.81% for the year ended June 30, 1998. The Company's net interest margin declined due mainly to a lower yield earned on loans and securities as well as increased borrowings, which tend to have a higher cost than core deposits. However, the Company's net interest margin was positively affected by lower rates paid on deposits and short-term borrowings. (Photo) "Thank you for calling FFY Bank. How may I direct your call?" When you call us, you are greeted by one of our operators, not an automated phone system. Provision for Loan Losses. The provision for loan losses totaled $494,000 for the year ended June 30, 1999 compared to $566,000 for the year ended June 30, 1998. The provision for loan losses reflects management's evaluation of the underlying credit risk of the Bank's loan portfolio to adequately provide for probable loan losses inherent in the loan portfolio as of the balance sheet date. The allowance for loan losses totaled 112.3% of non-performing loans at June 30, 1999, up from 82.4% at June 30, 1998 due primarily to a 29% decline in non-performing loans. More aggressive collection efforts contributed to the decline in non-performing loans. Non-Interest Income. Non-interest income totaled $2.6 million for the year ended June 30, 1999, an increase of $785,000, or 44.5%, compared to $1.8 million for the year ended June 30, 1998. Largely contributing to this increase was the Bank's secondary market operation, which began during fiscal year 1998 and accounted for $720,000 in gains from loan sales during the 1999 fiscal year compared to $134,000 in gains from loan sales during the 1998 fiscal year. Service charge income increased 28.1% from $700,000 for the year ended June 30, 1998 to $897,000 for the year ended June 30, 1999 largely due to increased fees on NOW accounts and fees from a loan extension program. Non-Interest Expense. Non-interest expense totaled $12.5 million for the year ended June 30, 1999, an increase of $724,000, or 6.2%, compared to $11.8 million for the year ended June 30, 1998. Largely contributing to this increase were the activities of FFY Holding's insurance affiliate, FFY Insurance Agency, Ltd., which began operations on April 1, 1998, and therefore only had three months activity during fiscal year 1998. Also contributing to the fiscal year 1999 growth in non-interest expense was increased depreciation, primarily due to Year 2000 computer-related purchases, and advertising. In addition, severance pay was awarded to a long-tenured Company officer in December 1998 as a result of her retirement. The Company's efficiency ratio totaled 49.8% for the year ended June 30, 1999 compared to 49.1% for the year ended June 30, 1998. Income Taxes. Federal income taxes totaled $4.0 million for the year ended June 30, 1999, a decline of $107,000 compared to $4.1 million for the year ended June 30, 1998. The decline in federal income taxes resulted from a reduction in the Company's effective tax rate due to increased income from tax-exempt securities. Minority Interest. Minority interest in loss of consolidated subsidiaries represents the portion of the net loss from the real estate and insurance affiliates not owned by FFY Holdings, Inc. The following table presents for the periods indicated average balance sheets, the total dollar amount of interest income from average interest- earning assets and the resultant yields, as well as the interest expense on the average interest-bearing liabilities, and the resultant costs, expressed both in dollars and rates. Average balances for all years presented are daily average balances. Interest on non-accruing loans has been included in the table to the extent received. Average Balances, Interest Rates and Yields (Dollars in Thousands)

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (changes in volume multiplied by old rate) and (ii) changes in rate (changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate. Rate/Volume Analysis (Dollars in Thousands)

Asset/Liability Management Asset/liability management is the measurement and analysis of the Company's exposure to changes in the interest rate environment. Management analyzes the effects of interest rate changes on net portfolio value and net interest income over specified periods of time by evaluating the Company's mix of interest-earning assets and interest-bearing liabilities in varied interest rate environments. The Company manages this risk on a continuing basis through the use of a number of strategies as an ongoing part of its business plan. The objective of the Company's asset/liability management is to maintain consistent growth in net interest income within the Company's policy guidelines. Management considers interest rate risk to be the Company's most significant market risk. Income simulation techniques and net portfolio value analysis are used to determine the Company's sensitivity to changes in interest rates. The models are based on actual cash flows and repricing characteristics for on and off balance sheet instruments, and incorporate market-based assumptions regarding the impact of changing interest rates on certain assets and liabilities. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes. Actual results may also differ due to changes in market conditions and management strategies. The income simulation modeling employed by the Company measures changes in net interest income over the next 12- and 24-month periods resulting from hypothetical rising and declining interest rates. Key assumptions used in this model include (i) reinvestment of security and mortgage cash flows, (ii) loan prepayment speeds, (iii) reinvestment of certificate of deposit maturities and (iv) deposit pricing strategies. As of June 30, 2000, the Company's simulation modeling indicated that, with a 200 basis point (bp) increase in interest rates, the Company's net interest income would be 2.96 percent and 6.76 percent less than if rates remained constant over the next 12- and 24-month periods, respectively. As of the same date and a 200bp decrease in interest rates, the Company's net interest income would be 1.44 percent more and 1.62 percent less than if rates remained constant over the next 12- and 24-month periods, respectively. The percentage changes in net interest income are within the acceptable range established by the Company's board of directors in both a rising and falling rate environment. The Bank measures the effect of interest rate changes on its net portfolio value (NPV), which is the difference between the market value of the Bank's assets and liabilities, under different interest rate scenarios. Changes in NPV are measured using interest rate shocks rather than changes in interest rates over a period of time as are assumed with the income simulation model. At June 30, 2000, the Bank's NPV ratio, using interest rate shocks ranging from a 300bp rise in rates to a 300bp decline in rates are shown in the following table. All values are within the acceptable range established by the Company's board of directors. Net Portfolio Value (Bank only)

A significant part of FFY Bank's asset/liability management focuses on originating adjustable-rate home equity credit lines. This product is tied to the prime rate and adjusts monthly depending on fluctuations in the prime lending rate. Adjustable-rate home equity credit lines totaled $21.2 million at June 30, 2000, an increase of $14.6 million from $6.6 million at June 30, 1999. At June 30, 2000, loans with an adjustable rate feature totaled $259.2 million, or 51.8% of the gross loan portfolio compared to $197.0 million, or 42.2% of the gross loan portfolio at June 30, 1999. The Bank's sale of predominantly fixed-rate mortgage loans to Fannie Mae decreases the Bank's exposure to interest rate risk and provides income from sales and servicing. Additionally, the servicing asset hedges the Bank against rising rates, as it becomes more valuable in a rising rate environment, offsetting the decline in the value of other longer term assets in a rising rate environment. In order to consolidate its customer base and reduce interest rate risk while maintaining adequate returns, FFY Bank has increased its investment in consumer loans over the past several years. While consumer loans are believed to have a greater risk of default than mortgage loans, consumer loans are typically much shorter in duration than mortgage loans which serves to reduce interest rate risk. Management intends to continue to expand the Bank's consumer loan portfolio over the next several years. Since June 30, 1996, the Company increased its investments in adjustable- rate securities in an attempt to reduce interest rate risk. At June 30, 2000, the market value of adjustable-rate securities totaled $42.4 million, or 26.8% of the total securities portfolio compared to a market value of $694,000, or 0.6% of the total securities portfolio four years earlier. The Company's management may, at times, place greater emphasis on maximizing net interest margin rather than merely concentrating on interest rate risk depending on the relationship between short- and long-term interest rates, market conditions and consumer preference. Management believes that increased net income resulting from a moderate contrast between the maturity of its assets and liabilities can provide high enough returns to justify the increased risk exposure during periods of stable interest rates. Management has established limits on the amount of its interest rate risk exposure. There can be no assurance, however, that management's efforts to limit interest rate risk will be successful. Liquidity and Cash Flows In general terms, liquidity is a measurement of the Company's ability to meet its cash needs. The Company's objective in liquidity management is to maintain the ability to meet loan commitments, purchase securities or to repay deposits and other liabilities in accordance with their terms without an adverse impact on current or future earnings. The Company's principal sources of funds are deposits, amortization and prepayments of loans, maturities, sales and principal receipts of securities, borrowings, repurchase agreements and operations. Federal regulations require the Bank to maintain minimum levels of liquid assets in each calendar quarter of not less than 4% of either (i) its liquidity base at the end of the preceding quarter, or (ii) the average daily balance of its liquidity base during the preceding quarter. The Bank's liquidity exceeded the applicable liquidity requirement at June 30, 2000 and 1999. Simply meeting the liquidity requirement does not automatically mean the Bank has sufficient liquidity for a safe and sound operation. Regulations also include a separate requirement that each thrift must maintain sufficient liquidity to ensure its safe and sound operation. Thus, adequate liquidity may vary depending on the Bank's overall asset/liability structure, market conditions, the activities of competitors and the requirements of its own deposit and loan customers. Management believes the Bank's liquidity is sufficient. Liquidity management is both a daily and long-term responsibility of management. The Bank adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities and (iv) the objective of its asset/liability management program. Along with its liquid assets, the Bank has additional sources of liquidity available including, but not limited to, the ability to obtain deposits by offering above-market interest rates and access to advances from the Federal Home Loan Bank. The primary investing activities of the Company are originating loans and purchasing securities. Growth in loans receivable during fiscal year 2000 used $30.6 million, the decline in loans receivable during fiscal year 1999 provided $29.2 million and growth in loans receivable during fiscal year 1998 used $21.6 million. A decrease in the Company's securities portfolio during fiscal year 2000 provided $26.5 million, whereas growth in the securities portfolio during fiscal years 1999 and 1998 used $72.0 million and $11.5 million, respectively. Generally, during periods of declining interest rates, the Bank would be expected to experience increased loan prepayments, which would likely be reinvested at lower interest rates. During periods of increasing interest rates, loan prepayments would be expected to decline, reducing funds available for investment at higher interest rates. The primary financing activities of the Company are deposits, repurchase agreements and borrowings. The decline in deposit accounts during fiscal year 2000 used $11.3 million, the increase in deposit accounts during fiscal year 1999 provided $13.4 million and the decline in deposit accounts during fiscal year 1998 used $6.1 million. The increase in repurchase agreements during fiscal year 2000 provided $320,000, the decline in repurchase agreements during fiscal year 1999 used $6.5 million and the increase in repurchase agreements during fiscal year 1998 provided $32.1 million. The increase in borrowed funds during fiscal years 2000, 1999 and 1998 provided $14.0 million, $48.8 million and $6.5 million, respectively. Capital Resources Office of Thrift Supervision (OTS) regulations require savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain OTS approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At June 30, 2000, the minimum capital regulations require savings institutions to have tangible capital to total tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1) capital to total adjusted tangible assets of 3.0%; and a minimum ratio of total capital (core capital and supplementary capital) to risk weighted assets of 8.0%, of which 4.0% must be core capital. Under the prompt corrective action regulations, the OTS is required to take certain supervisory actions (and may take additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect on an institution's financial statements. The regulations establish a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well capitalized if it has a core (Tier 1) capital ratio of at least 5.0% (based on average total assets); a core (Tier 1) risk-based capital ratio of at least 6.0%; and a total risk-based capital ratio of at least 10.0%. The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the OTS about capital components, risk weightings and other factors. At June 30, 2000, the Bank met all capital adequacy requirements to which it is subject. Further, the most recent OTS notification categorized the Bank as a well-capitalized institution under the prompt corrective action regulations. There have been no conditions or events since that notification that management believes have changed the Bank's capital classification. Impact of Inflation and Changing Prices The Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Bank's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Company are monetary. As a result, interest rates have a greater impact on the Company's performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. Year 2000 On January 1, 2000, the Company reported that FFY Bank had successfully completed its processing for 1999 and had tested all mission critical systems for proper operation due to the change to the Year 2000. Based on operations since January 1, 2000, the Company does not expect any significant impact to its ongoing business as a result of the Year 2000. The Company spent nearly $1 million on its Year 2000 readiness efforts, including $429,000 for a new comprehensive software system in 1998. In addition to the new software system, monies were spent to replace outdated, noncompliant hardware and software as well as identifying and remediating Year 2000 problems. Market Prices and Dividends Declared The common stock of FFY Financial Corp. trades on The Nasdaq Stock Market under the symbol "FFYF". As of July 31, 2000, there were 6,720,115 shares outstanding held by approximately 1,259 stockholders of record (not including the number of persons or entities holding stock in nominee or street name through various brokerage firms). The table below shows the quarterly reported high and low trade prices of the common stock and cash dividends per share declared during the years ended June 30, 2000 and 1999.

(Photo) Our team of qualified loan processors simplifies the home loan process from the time of application through closing. Quarterly Earnings Summary ---------------------------------------------------------------------------- FFY Financial Corp. and Subsidiaries (Dollars in Thousands Except Per Share Data)

* Consolidated Statements of Financial Condition, June 30, 2000 and 1999 * Consolidated Statements of Income, Years ended June 30, 2000, 1999 and 1998 * Consolidated Statements of Changes in Stockholders' Equity, Years ended June 30, 2000, 1999 and 1998 * Consolidated Statements of Cash Flows, Years ended June 30, 2000, 1999 and 1998 * Notes to Consolidated Financial Statements * Independent Auditors' Report FFY FINANCIAL CORP. AND SUBSIDIARIES Consolidated Statements of Financial Condition June 30, 2000 and 1999

See accompanying notes to consolidated financial statements. FFY FINANCIAL CORP. AND SUBSIDIARIES Consolidated Statements of Income Years ended June 30, 2000, 1999 and 1998

See accompanying notes to consolidated financial statements. FFY FINANCIAL CORP. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Years ended June 30, 2000, 1999 and 1998

See accompanying notes to consolidated financial statements. FFY FINANCIAL CORP. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 2000, 1999 and 1998

See accompanying notes to consolidated financial statements. FFY FINANCIAL CORP. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 (1) Summary of Significant Accounting Policies (a) Principles of Consolidation The consolidated financial statements of the Company include the accounts of FFY Financial Corp. (FFY or Holding Company) and its wholly owned subsidiaries, FFY Bank (Bank) and FFY Holdings, Inc. The consolidated financial statements also include the accounts of FFY Insurance Agency, Ltd., the insurance affiliate of FFY Holdings, Inc. The accounts of FFY Holdings real estate affiliate, Coldwell Banker FFY Real Estate, are not consolidated since the company owns a non-controlling one-third interest. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Basis of Presentation The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated statement of financial condition and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Cash and Cash Equivalents The Company considers all highly liquid debt instruments with maturities at date of purchase of three months or less to be cash equivalents. Cash equivalents also include interest-bearing deposits and short-term investments. (d) Securities Management determines the appropriate classification of securities at the time of purchase. Debt and equity securities, including mortgage-backed securities, are classified as available for sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a component of accumulated other comprehensive income (loss), net of tax. Available-for-sale securities are those which management may decide to sell, if needed, for liquidity, asset/liability management, or other reasons. Gains or losses on the sale of securities are recognized using the specific identification method. A decline in the fair value of any security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the interest method. Dividends and interest income are recognized when earned. (e) Loans and Related Fees and Costs Loans receivable originated with the intent to hold to maturity are carried at unpaid principal balances, less the allowance for loan losses and net deferred loan origination fees. Interest on loans is accrued and credited to income as earned. The accrual of interest is discontinued generally when a loan is more than 90 days delinquent or otherwise doubtful of collection. Such interest ultimately collected is credited to income in the period of recovery. Loans are returned to accrual status when both principal and interest are current, and the loan is determined to be performing in accordance with the applicable loan terms. Loan origination fees and certain direct loan origination costs are deferred, and the net amounts are amortized as an adjustment of the related loan's yield. The Bank amortizes these amounts using the interest method over the contractual life of the related loans. The Company currently sells loans to Federal National Mortgage Association (Fannie Mae) in the secondary market and delivers shortly after funding. Mortgage loans held for sale are carried at the lower of cost or market value, determined on a net aggregate basis. Mortgage servicing rights associated with loans originated and sold, where servicing is retained, are capitalized and included in other assets in the statement of financial condition. The servicing rights capitalized are amortized in proportion to and over the period of estimated servicing income. Management measures impairment of servicing rights based on prepayment trends and external market factors. Any impairment is recorded as a valuation allowance. (f) Allowance for Loan Losses The allowance for loan losses is maintained at a level adequate to absorb probable losses inherent in the loan portfolio as of the balance sheet date. The provision for loan losses charged to expense is based on management's judgment taking into consideration past experience, current and estimated future economic conditions, known and inherent risks in the loan portfolio, and the estimated value of underlying collateral. While management uses the best information available to make these evaluations, future adjustments to the allowance may become necessary if economic conditions change substantially from the assumptions used in making the evaluations. Additionally, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the recognition of additions to the reserve based on their judgments of information available to them at the time of their examination. Management considers a loan impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts of principal and interest under the original terms of the loan agreement. Significant factors impacting management's judgment in determining when a loan is impaired include an evaluation of compliance with repayment program, condition of collateral, deterioration in financial strength of borrower or any case when the expected future cash payments may be less than the recorded amount. Since the Bank's loans are primarily collateral dependent, measurement of impairment is based on the fair value of the collateral. Management excludes large groups of smaller balance homogeneous loans such as residential mortgages and consumer loans which are collectively evaluated. (g) Office Properties and Equipment Land is carried at cost. Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. Estimated lives are 10 to 40 years for office properties, including improvements, and 3 to 10 years for equipment. Leasehold improvements are depreciated using the straight-line method over the terms of the related leases. (h) Repurchase Agreements The Bank enters into sales of securities under agreements to repurchase securities of the same agency bearing the identical contract rate and similar remaining weighted average maturities as the original securities that result in approximately the same market yield. (i) Income Taxes The Company files a consolidated federal income tax return. The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. (j) Earnings Per Share Basic earnings per share of common stock for the years ended June 30, 2000, 1999 and 1998 have been determined by dividing net income for the year by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share of common stock for the years ended June 30, 2000, 1999 and 1998 have been determined by dividing net income for the year by the weighted average number of shares of common stock outstanding during the year adjusted for the dilutive effect of outstanding stock options. Total shares outstanding for earnings per share calculation purposes have been reduced by the KSOP shares that have not been committed to be released. In addition, weighted average common and common equivalent shares have been restated to reflect a 100% stock dividend, effected in the form of a two-for- one stock split, declared on January 19, 1999. The computation of basic and diluted earnings per share is shown in the table below.

(k) Comprehensive Income On July 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standard (SFAS) No. 130, Reporting Comprehensive Income. This Statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income consists of net income and other comprehensive income, which for the Company is comprised entirely of unrealized holding gains and losses on securities available- for-sale, net of the related tax effect. As permitted by SFAS No. 130, the Company has elected to disclose the components of comprehensive income in the Consolidated Statements of Changes in Stockholders' Equity. Other comprehensive income (loss), before tax, for the years ended June 30, 2000, 1999 and 1998 was ($5,453,022), ($5,500,601) and $1,062,941, respectively. The related tax (expense) benefit for the years ended June 30, 2000, 1999 and 1998 was $1,854,000, $1,871,000 and ($362,000), respectively. (l) Effect of New Financial Accounting Standards In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, that was subsequently amended by SFAS No. 137, which delayed the original effective date of SFAS No. 133. This statement standardizes the accounting for derivative contracts, by requiring that an entity recognize those items as assets or liabilities in the statement of financial condition and measure them at fair value. SFAS No. 137 was effective for the Company on July 1, 2000. Management determined that the Company did not engage in any hedging activities or derivative instruments and therefore, the adoption of SFAS No. 137 had no impact on financial condition or results of operations. (m) Reclassifications Certain amounts in the prior year consolidated financial statements have been reclassified to conform with the current year's presentation. (2) Securities A summary of securities available for sale is as follows:

The amortized cost and fair values of debt securities available for sale at June 30, 2000, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities do not have a contractual maturity.

The weighted average tax-equivalent annual yield of securities available for sale at June 30, 2000 and 1999 was 6.59% and 6.32%, respectively. Gross proceeds from sales of securities available for sale during the years ended June 30, 2000, 1999 and 1998 totaled $15,451,261, $35,698,278 and $41,929,782, respectively. Gross realized gains and losses on sales of securities available for sale totaled $131,868 and $86,294, respectively, during the year ended June 30, 2000; $385,137 and $181,820, respectively, during the year ended June 30, 1999; and $324,487 and $78,014, respectively, during the year ended June 30, 1998. (3) Loans Receivable Following is a summary of loans receivable at June 30, 2000 and 1999:

Activity in the allowance for loan losses for the years ended June 30, 2000, 1999 and 1998 is summarized as follows:

Real estate owned, troubled debt restructurings, and non-accrual loans, as well as the related impact on income in the accompanying consolidated statements of income, were immaterial for 2000, 1999 and 1998. At June 30, 2000 and 1999, non-accrual loans consisted primarily of one-to-four family residences and totaled $3,128,827 and $2,160,290, respectively. At June 30, 2000 and 1999, the recorded investment in loans which have been identified as being impaired totaled $1,565,705 and $1,591,754, respectively. No valuation allowance has been recorded on impaired loans since the fair value of the underlying collateral exceeds the recorded investment on an individual loan by loan basis. Average impaired loans for the years ended June 30, 2000 and 1999 totaled $1,565,580 and $1,606,423, respectively. Mortgage loans serviced for others are not included in the accompanying consolidated statements of financial condition. The outstanding principal balance of loans serviced for others totaled $47,311,813 and $35,050,912 at June 30, 2000 and 1999, respectively. Capitalized net mortgage servicing rights totaled $418,687 and $329,602 at June 30, 2000 and 1999, respectively. (4) Office Properties and Equipment Following is a summary of office properties and equipment by major classifications as of June 30, 2000 and 1999:

(5) Deposits Following is an analysis of interest-bearing deposits, which consist of various savings and certificate accounts with varying interest rates, as of June 30, 2000 and 1999:

At June 30, 2000 and 1999, scheduled maturities of certificate accounts are as follows:

The 1999 amounts above included callable certificate accounts totaling $8,556,305 with a weighted average rate of 6.91%. Due to a decline in market rates during fiscal year 1999, management exercised their call options during fiscal year 2000. There were no callable certificate accounts at June 30, 2000. Following is a summary of certificate accounts of $100,000 or more by remaining maturities at June 30, 2000 and 1999:

At June 30, 2000 and 1999, certificate accounts included $1,215,105 and $1,543,897, respectively, in customer deposits for which federal agency obligations were pledged as collateral in an amount equal to the certificate account balances. The weighted average rate of the certificate accounts was 6.43% and 5.51%, respectively, at June 30, 2000 and 1999. The certificates at June 30, 2000 for which securities are pledged are scheduled to mature from April 2002 to April 2005. At June 30, 2000, certificate accounts included four deposits totaling $13,300,000 from the State of Ohio with a weighted average rate of 6.60%. These certificates have six-month terms which will mature from September 2000 to December 2000. Federal Home Loan Bank letters of credit collateralize $8,300,000 of these deposits and federal agency obligations collateralize the remaining $5,000,000. Interest expense on deposits for the years ended June 30, 2000, 1999 and 1998 is summarized below:

The weighted average interest rate on deposits was 4.56% and 4.27% at June 30, 2000 and 1999, respectively. (6) Securities Sold Under Agreements to Repurchase At June 30, 2000 and 1999, securities sold under agreements to repurchase were as follows:

Short and long-term repurchase agreements are treated as financings, and the obligations to repurchase securities sold are reflected as a liability in the consolidated statements of financial condition. The pledged securities, although held in safekeeping outside the Bank, remain in the asset accounts. A summary of individual long-term repurchase agreements at June 30, 2000 and 1999 with respect to maturity and call dates is summarized in the table below. The call dates renew every three months and are at the option of the buyer.

(7) Borrowed Funds Borrowed funds at June 30, 2000 and 1999 consist of advances from the Federal Home Loan Bank (FHLB).

The FHLB line of credit advances have adjustable rates. The LIBOR- based advance is tied to 3-month LIBOR minus 16 basis points and is adjusted quarterly. The $25 million convertible fixed-rate advance can be converted, at the option of the FHLB of Cincinnati, to a 3-month LIBOR-based advance on May 14, 2004. All outstanding advances at June 30, 2000 from the FHLB of Cincinnati are secured by a blanket mortgage collateral agreement for 150% of outstanding advances, amounting to $145.2 million. At June 30, 2000, the Bank has two standby letters of credit with the FHLB in the amounts of $5,000,000 and $3,300,000, which respectively mature on October 4, 2000 and December 6, 2000. These letters were not drawn on as of June 30, 2000 and are being used to collateralize certificates of deposit. A fee of 12 1/2 basis points was charged for each letter of credit. (8) Compliance with Regulatory Capital Requirements The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Office of Thrift Supervision (OTS) regulations require savings institutions to maintain certain minimum levels of regulatory capital. An institution that fails to comply with its regulatory capital requirements must obtain OTS approval of a capital plan and can be subject to a capital directive and certain restrictions on its operations. At June 30, 2000, the minimum regulatory capital regulations require institutions to have equity capital to total tangible assets of 1.5% ; a minimum leverage ratio of core (Tier 1) capital to total adjusted tangible assets of 3.0% ; and a minimum ratio of total capital (core capital and supplementary capital) to risk weighted assets of 8.0% , of which 4.0% must be core capital. The most recent notification from the OTS categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution's category. The following is a reconciliation of the Bank's GAAP and Regulatory capital, and a summary of the Bank's actual capital ratios compared with the OTS minimum bank capital adequacy requirements and their requirements for classification as well capitalized at June 30, 2000 and 1999:

(9) Income Taxes Federal income tax expenses include current and deferred amounts as follows:

Actual federal income tax expense differed from the amounts computed by applying the federal income tax rate of 35% to income before federal income taxes as a result of the following:

The net tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 2000 and 1999, is as follows:

A valuation allowance is established to reduce the deferred tax asset if it is more likely than not that the related tax benefits will not be realized. In management's opinion, it is more likely than not that the tax benefits will be realized; consequently, no valuation allowance has been established as of June 30, 2000 and 1999. Retained earnings at June 30, 2000 includes approximately $17,254,000 for which no provision for federal income tax has been made. These amounts represent allocations of income to bad debt deductions for tax purposes only. These qualifying and nonqualifying base year reserves and supplemental reserves will be recaptured into income in the event of certain distributions and redemptions. Such recapture would create income for tax purposes only, which would be subject to the then current corporate income tax rate. Recapture would not occur upon the reorganization, merger, or acquisition of the Bank, nor if the Bank is merged or liquidated tax- free into a bank or undergoes a charter change. If the Bank fails to qualify as a bank or merges into a nonbank entity, these reserves will be recaptured into income. The favorable reserve method previously afforded to thrifts was repealed for tax years beginning after December 31, 1995. Large thrifts must switch to the specific charge-off method of Section 166. In general, a thrift is required to recapture its qualifying and nonqualifying reserves in excess of its qualifying and nonqualifying base year reserves. As the Bank has previously provided deferred taxes on the recapture amount, no additional financial statement tax expense should result from this legislation. (10) Commitments, Contingencies, and Credit Risk In the normal course of business, the Bank is party to financial instruments with off-balance sheet risk to meet the financing needs of its customers and to minimize exposure to fluctuations in interest rates. These financial instruments primarily include commitments to extend credit and unused lines of credit. Currently the Bank does not enter into forward contracts for future delivery of residential mortgage loans. These instruments involve elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the commitment is represented by the contractual amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments. Interest rate risk on commitments to extend credit results from the possibility that interest rates may have moved unfavorably from the position of the Bank since the time the commitment was made. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates of 30 to 180 days or other termination clauses and may require payment of a fee. Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Following is a table of financial instruments whose contract amounts represent credit risk:

The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained by the Bank upon extension of credit is based on management's credit evaluation of the applicant. Collateral held is generally single-family residential real estate. The Bank's primary lending area is in Mahoning, Trumbull, and Columbiana counties in the state of Ohio. Accordingly, the ultimate collectibility of a substantial portion of the loan portfolio is susceptible to changes in market conditions in that area. In the ordinary course of business, the Company has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, the Company is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial statements of the Company. (11) Director and Employee Plans (a) Stock Option and Incentive Plan FFY sponsors a stock option and incentive plan for the benefit of directors and employees of the Company. The number of shares of common stock authorized under the plan is 1,326,000, equal to 10% of the total number of shares issued in the conversion adjusted for the 100% stock dividend in 1999. The option exercise price must be at least 100% of the fair value of the common stock on the date of the grant, and the option term cannot exceed 10 years. Outstanding options can be exercised over a 10-year period from the date of the grant. Following is activity under the plan during the years ended June 30, 2000, 1999 and 1998:

On May 23, 2000, 83,878 options were granted to the outside directors of the Company pursuant to the merger with First Place Financial Corp. (refer to note 15). These options shall vest in their entirety only upon the closing of the proposed merger. The Company applies Accounting Principles Board (APB) No. 25 for its stock option and incentive plan. Accordingly, no compensation cost has been recognized. Had compensation cost for this plan been determined consistent with SFAS No. 123, the Company's net income and earnings per share pro forma amounts for the years ended June 30, 2000, 1999 and 1998 would be as follows (in thousands, except per share amounts):

The above results may not be representative of the effects of SFAS No. 123 on net income for future years. The Company applied the Black-Scholes option pricing model to determine the fair value of each option granted. Below is a summary of the assumptions used in the calculation:

(b) Employee Stock Ownership and 401(k) Plan In June 1993, the Company established the FFY Financial Corp. Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The ESOP covers substantially all employees with more than one year of employment and who have attained the age of 21. The ESOP borrowed $5,304,000 from FFY and purchased 1,060,800 shares (adjusted for the 100% stock dividend in 1999) in conjunction with the Bank's conversion. Effective January 1, 1997, the Company amended the ESOP to include 401(k) provisions under Section 401(k) of the Internal Revenue Code, thus forming the FFY Financial Corp. Employee Stock Ownership and 401(k) Plan (KSOP). The eligibility requirements of the KSOP did not change pursuant to the amendment. Under the 401(k) provisions of the KSOP, employees may elect to make pretax contributions of up to 15% of compensation as defined in the plan document. The Company matches up to 6% of employee compensation in the form of stock from the shares that are committed to be released to participants for that year. The remaining shares after the 401(k) match are released to participants' accounts using the shares allocated method. Dividends on allocated and unallocated shares are used for debt service. The Company follows SOP 93-6, Employers' Accounting for Employee Stock Ownership Plans which requires that (1) compensation cost be recognized based on the fair value of the KSOP shares when committed to be released; (2) dividends on unallocated shares used for debt service do not reduce compensation expense and are not considered dividends for financial reporting purposes; and (3) KSOP shares that have not been committed to be released are not considered outstanding for purposes of computing earnings per share. KSOP compensation expense for the years ended June 30, 2000, 1999 and 1998 totaled $827,641, $1,138,068 and $1,131,374, respectively. The fair value of unearned KSOP shares at June 30, 2000 and 1999, totaled $5,002,976 and $10,053,014, respectively. Following is a summary of KSOP shares at June 30, 2000 and 1999:

(c) Recognition and Retention Plans (RRPs) The Company and the Bank have a Recognition and Retention Plan (RRP), formed in conjunction with the Bank's conversion in 1993. Pursuant to the RRP, 474,042 shares of common stock awarded to directors and certain officers were earned over a 3 1/2 year period through December 1996. On May 23, 2000, 56,000 RRP shares were awarded to certain officers of the Bank pursuant to the pending merger with First Place Financial Corp. (refer to note 15). These shares shall vest in their entirety only upon the closing of the proposed merger. Such shares, if vesting occurs, will be accounted for as compensation expense. At June 30, 2000, 358 shares in the RRP remain unawarded. The 56,358 shares that remain in the RRP at June 30, 2000 are reflected as a reduction of stockholders' equity. (12) Stockholders' Equity On January 19, 1999, the Company announced a 100% stock dividend, which is equivalent to a two-for-one stock split, that was paid on March 5, 1999 to shareholders of record on February 19, 1999. The Company used its then 2.8 million treasury shares and issued an additional 959,366 shares to pay for the stock dividend. Proper accounting treatment to record these transactions warranted the decline in additional paid in capital and retained earnings, but did not affect total stockholders' equity. Additionally, all share and per share data have been restated as a result of the stock dividend. In accordance with federal regulations, at the time the Bank converted from a federal mutual savings bank to a federal stock savings bank, the Bank restricted a portion of retained earnings by establishing a liquidation account. The liquidation account is maintained for the benefit of eligible account holders who continue to maintain their accounts at the Bank. The liquidation account is reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder's interest in the liquidation account. In the event of a complete liquidation, each eligible account holder is entitled to receive a distribution from the liquidation account in an amount proportionate to the current adjusted qualifying balances for accounts then held. Under current regulations, the Bank is not permitted to pay dividends on its stock if the effect would reduce its regulatory capital below the liquidation account. OTS regulations also provide that an institution that before and after a proposed distribution remains well-capitalized, may make capital distributions during any calendar year equal to the greater of 100% of net income for the year-to-date plus retained net income for the two preceding years. However, an institution deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. The Bank may pay dividends in accordance with this general authority. Institutions proposing to make any capital distribution need not submit written notice to the OTS prior to such distribution unless they are a subsidiary of a holding company or would not remain well-capitalized following the distribution. Savings institutions that do not, or would not meet their current minimum capital requirements following a proposed capital distribution or propose to exceed the net income limitations must obtain OTS approval prior to making such distribution. During the years ended June 30, 2000, 1999 and 1998, the Bank paid cash dividends to the Holding Company as follows:

At June 30, 2000, dividends payable from the Bank to the Holding Company totaled $1,684,144. After the dividends, the Bank's regulatory capital exceeds all of the fully phased-in capital requirements imposed by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 as well as the aforementioned liquidation account. Unlike the Bank, the Holding Company is not subject to these regulatory restrictions on the payment of dividends to its stockholders. However, the source of future dividends may depend upon dividends from the Bank. (13) Fair Value of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The fair value estimates are based on the following methods and assumptions: * Cash and cash equivalents. The carrying amounts of cash and cash equivalents approximates fair value. * Securities available for sale. Fair values for securities are based on quoted market prices or dealer quotes; where such quotes are not available, fair values are based on quoted market prices of comparable instruments. * Loans receivable. The fair values of loans receivable are estimated using a discounted cash flow calculation that applies estimated discount rates reflecting the credit and interest rate risk inherent in the loans to homogeneous categories of loans with similar financial characteristics. Loans are segregated by types, such as residential mortgage, commercial and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms. * Loans available for sale. The fair values of loans available for sale are based on quoted market prices of similar loans sold. At June 30, 1999, the carrying amount of loans available for sale approximates fair value. * Federal Home Loan Bank stock. This item is valued at cost, which represents redemption value and approximates fair value. * Accrued interest receivable. The carrying amount of accrued interest receivable approximates fair value. * Deposits. The fair values of fixed maturity certificate accounts are estimated using a discounted cash flow calculation that applies interest rates currently offered for deposits of similar remaining maturities. The fair values of other deposit accounts (passbook, NOW, and money market accounts) equal their carrying values. * Short-term securities sold under agreements to repurchase. The carrying amount of short-term securities sold under agreements to repurchase approximates fair value. * Long-term securities sold under agreements to repurchase. Fair value is estimated using a discounted cash flow calculation that applies interest rates currently available to the Bank for debt with similar terms and maturity. * Short-term borrowed funds. Short-term borrowed funds reprice frequently; therefore, the carrying amount approximates fair value. * Long-term borrowed funds. Fair value is estimated using a discounted cash flow calculation that applies interest rates currently available to the Bank for debt with similar terms and maturity. * Accrued interest payable. The carrying amount of accrued interest payable approximates fair value. * Off-balance sheet instruments. The fair value of commitments is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of undisbursed lines of credit is based on fees currently charged for similar agreements or on estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The carrying amount and fair value of off-balance sheet instruments is not significant as of June 30, 2000 and 1999. The fair value estimates are presented for on-balance sheet financial instruments without attempting to estimate the value of the Bank's long-term relationships with depositors and the benefit that results from low-cost funding provided by deposit liabilities. In addition, significant assets which are not considered financial instruments and are, therefore, not a part of the fair value estimates include office properties and equipment. (14) Condensed Parent-Company-Only Financial Statements The following condensed statements of financial condition as of June 30, 2000 and 1999, and related condensed statements of income and cash flows for the years ended June 30, 2000, 1999 and 1998 for FFY Financial Corp. should be read in conjunction with the consolidated financial statements and the notes thereto.

(15) Pending Merger On May 23, 2000, the board of directors of FFY, and First Place Financial Corp. (First Place), the holding company for First Federal Savings and Loan Association of Warren, entered into a definitive agreement (the Merger Agreement) to combine in a merger of equals (the Merger). The Merger Agreement calls for a tax-free exchange of each outstanding share of FFY common stock for 1.075 shares of First Place common stock, with cash paid in lieu of fractional shares. In addition, pursuant to the Merger Agreement, FFY Bank will merge with First Federal Savings and Loan Association of Warren to become First Place Bank. In connection with the Merger Agreement, FFY and First Place entered into option agreements pursuant to which each party granted the other party options, exercisable under certain circumstances, to purchase shares of their respective common stock in an amount equal to 19.9% of the total number of outstanding shares of either FFY's or First Place's common stock. The Merger will be accounted for as a purchase by First Place and is expected to close in the fourth quarter of calendar year 2000. The Merger Agreement has been approved by the boards of directors of both companies. However, it is subject to certain other conditions, including the approvals of the shareholders of both companies and the approvals of regulatory authorities. Included in the Company's results of operations for fiscal year 2000 were $329,000 in pre-tax expenses for professional fees related to the pending Merger with First Place. Independent Auditors' Report The Board of Directors FFY Financial Corp.: We have audited the accompanying consolidated statements of financial condition of FFY Financial Corp. and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FFY Financial Corp. and subsidiaries as of June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Cleveland, Ohio July 28, 2000

Annual Report on Form 10-K A copy of the Annual Report on Form 10-K filed with the Securities and Exchange Commission will be available September 29, 2000 without charge upon written request to: Therese Ann Liutkus, CPA Treasurer and CFO FFY Financial Corp. 724 Boardman-Poland Road P.O. Box 3300 Youngstown, Ohio 44513 Phone: (330) 726-3396 Fax: (330) 758-1356 E-mail: ffyinfo@ffybank.com Web page: www.ffybank.com Annual Meeting The Annual Meeting of Stockholders of FFY Financial Corp. will be held at 2:00 p.m. on Wednesday, November 15, 2000 at: The Holiday Inn 7410 South Avenue Youngstown, Ohio, 44512 Stockholder Services Fifth Third Bank serves as transfer agent for FFY Financial Corp.'s shares. Communications regarding change of address, transfer of shares, lost certificates or dividend reinvestment should be sent to: Fifth Third Bank Corporate Trust Operations 580 Building Mail Location 10AT60 Cincinnati, Ohio 45263 (800) 837-2755 Market Makers McDonald & Company Securities, Inc Sandler O'Neill & Partners Keefe, Bruyette & Woods, Inc. Friedman, Billings, Ramsey & Co. Stifel Nicholaus & Co. Chicago Capital, Inc. OTA Limited Partnership Insurance and Real Estate Affiliations FFY Insurance Agency, Ltd. 1275 Boardman-Poland Road Youngstown, Ohio 44514 Phone: (330) 726-4636 Fax: (330) 726-4635 E-mail: daniel.landers@mciworldcom.net ------------------------------ Coldwell Banker FFY Real Estate, Ltd. 1275 Boardman-Poland Road Youngstown, Ohio 44514 Phone: (330) 726-8161 Fax: (330) 726-1931 E-mail: dmeikle104@aol.com ------------------ ---------------------------------------------------------------------------- FFY Bank Office Locations ---------------------------------------------------------------------------- Phone Number (330) 726-3396 connects all offices except Howland (330) 856-5566 Main Office 724 Boardman-Poland Road P.O. Box 3300 Youngstown, Ohio 44513-3300 Branch Offices Downtown Canfield 25 Market Street, Suite 3 2 South Broad Street Youngstown, Ohio 44503 Canfield, Ohio 44406 Westside Canfield Drive-up 4390 Mahoning Avenue 352 W. Main Street Youngstown, Ohio 44515 Canfield, Ohio 44406 Southside Cornersburg 3900 Market Street 3516 S. Meridian Road Youngstown, Ohio 44512 Youngstown, Ohio 44511 Northside New Middletown 600 Gypsy Lane 10416 Main Street Youngstown, Ohio 44505 New Middletown, Ohio 44442 Logan Way Howland Loan Office 4423 Logan Way 5000 E. Market Street, Suite 16 Youngstown, Ohio 44505 Warren, Ohio 44484 Poland FFY Professional Center/Loan Office 5 McKinley Way West 1275 Boardman-Poland Road Poland, Ohio 44514 Youngstown, Ohio 44514 Struthers IGA 655 Creed Street Struthers, Ohio 44471

FFY FINANCIAL CORP 10-K